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Economy

Personal loan borrowing decreasing

Written by Roberta Murray

Friday, 29 August 2008

Mortgage lending and unsecured loans drying up by the day.

Consumers squeezed by the credit crunch are borrowing less on unsecured personal loans, according to new figures from uSwitch.com.

The price comparison and switching service found that the number of personal loans issued has fallen by 39,338 each quarter over the past year.

In monetary terms, this represents a fall in the amount borrowed of £283 per quarter.

Simeon Linstead, Head of Personal Finance at uSwitch.com said, "our research has confirmed that both mortgage lending and unsecured loans are drying up by the day."

He said that as well as a reduction in the amount of credit being issued by lenders, unsecured personal loans have also become more expensive over the last 12 months, which is further restricting borrowers.

Separate research by uSwitch.com revealed that rates on unsecured personal loans have increased by 1.3% in just over a year.

However, Linstead added that the market for personal loans is "vast" and consumers can still find competitive deals if they take the time to shop around.

Credit card borrowing

uSswitch also revealed research indicating consumers are borrowing more on credit cards as unsecured personal loans become increasingly difficult to obtain.

It was found that gross credit card lending has risen by an average of £179 million per quarter over the last year. At the same time, the overall amount issued in unsecured personal loans has fallen by £283 million each quarter.

Credit card debt currently stands at £54.9 billion, owed by 30.8 million consumers on 67.3 million cards, the data shows.

Linstead said consumers seem to be turning to plastic in response to the restricted availability of other forms of credit. "Whilst it's good news that people can still access extra money if they need it, this is not a sustainable solution for the problem," he warned.

Figures from the UK payments association Apacs show that UK consumers spent £92.6 billion on credit and debit cards in the second quarter of this year.